Russia's Pendulum Keeps on Swinging

By Jonathan O'Shaughnessy

Photo: Russia's Pendulum Keeps on Swinging

Thursday, the day after the worst sell-off in Russia's history (down 19.1%), the markets were suspended at 2:05pm (Moscow time) because of a massive rebound. The Russian markets rallied approximately 17% at the time of close.

According to a Bloomberg article: "Russian Stocks soar 17%, Leading Rally for Emerging Markets," Russian President Dmitry Medvedev announced three days ago that the Russian government will funnel an additional $36 billion worth of capital into ailing Russian banks. In addition, the government would add to the sizeable loans ($150 billion) the government has already issued all within the next few days.

That, in addition to an oil surge, which helped OAO Rosneft soar 25%, bolstered the MICEX and RTS exchanges gain back a significant portion of Wednesday's losses.

That being said, the exchange is still down a brutal 64% for the year. The Russian reserves have fallen moderately (approx. $50B from $600B reserves in August) to help lend stability to the markets - although there has been little evidence in their behavior.

As I wrote in a previous article: "Russia: From Growth to Mere Survival" – it will take an exceedingly long time for stability and confidence to be restored in the markets after such a horrific freefall. While it is promising to see a positive rally after the worst day in the markets history, it's almost as disconcerting to see the gargantuan pendulum-like swings the market has been taking. A 17% rebound where market trading has to be suspended due to overheating doesn't restore my, or possibly any other investor's, confidence in the markets' stability.

After looking dismally at the Emerginvest heat map and seeing a shocking 64.4% loss in the last year for Russia, its startling to realize that these out-of-control swings might do even more serious damage to an already devastated economy. Russia must attempt to keep the swings under control, which is exceptionally difficult given an unprecedented time in global market turmoil – especially as the market seems to be riding on U.S. reaction to domestic troubles.

We'll see what tomorrow brings. I just hope it is not another 15%+ day in either direction.

… I can't believe I just said "another."